The forex market is a highly volatile market which experiences constant currency price fluctuations. Because of this, many newbies are always being advised to start with a forex demo account before investing their money and trading it on a real/live account.
This is a sound advice which no one should ever take for granted. Nevertheless, despite everyone hearing all about using a practice account, no one ever tells you when to switch to a live account. My answer to when a trader should permanently switch to a live account is NEVER!
I do not mean you should never switch to a live account, I simply mean always keep your demo account running even after you switch to the live account.
As to the best time to start using a real/live account, it should be when you are ready. There are a few points that determine when a trader is finally ready to invest money and profitably manage their account.
To determine when you are ready, you have to ask yourself some important questions and honestly and critically analyze your responses.
Have You Chosen The Right Broker?
Your broker is critical to your forex trading success. Do not open a live account until you are satisfied with your choice of broker. To choose a broker, check whether the brokerage firm is licensed and adheres to the guidelines on this site found here How to Choose the Best Forex Broker.
Check also that they are under a regulatory body. Search on online forums on what others are saying about your broker. Do they have past, continuing, or pending legal suits against them?
Are there customer complaints against them? Which country are they registered in and how effective is the legal system in that country?
Here is a review of some of the best brokers in the market: Top brokers.
Are You Familiar with All the Trading Platform’s Features?
You have been trading on a forex demo account, but are you familiar with all the features of that particular trading platform?
The basic features you have to be well versed in using include the price charts, stop loss, take profit, and trailing stop loss. Check on every other feature available on your demo account and ask questions from customer support.
The live account will include some additional features which you will have to learn how to use. That will be much easier if you already know what everything does on the demo platform.
Have You Defined Your Trading Strategy?
Having a trading strategy is the single most important determinant on whether your trades will be making losses or they will be profitable.
No two traders are the same and it takes time for each trader to develop a strategy that works for them. Use your demo account to define and refine your forex trading strategy.
Have You Chosen A Currency Pair?
Currencies are traded in pairs. You sell one currency to buy another. It is preferable and advisable for a trader to master one currency pair at a time.
Try and master all the unique characteristics of one chosen currency pair using your demo account.
If it does not go well with your preferred trading style, then try another and another until you find a currency pair that you can work well with. Only then should you consider moving to a real account.
Have You Decided On A Risk Management Strategy?
99% of all your trades may be 100% profitable but if you do not have a proper and effective risk management strategy in place, that remaining 1% of your trades will wipe out your whole account.
Use your practice account to develop a good risk management strategy and stick to it throughout your trades.
Have You Learnt How To Generate Trade Signals?
Trade signals will help you in determining trade entry and exit points. There are many services that will supply you with trade signal but these services charge very high subscription fees.
Instead of paying $500 per month to receive trade signals that may or may not be profitable for your trades, learn to use your demo account and market analysis to generate your own trade signals.
Once you are capable of generating accurate signals then you can consider switching to a live account.
Have You Decided On Optimal Leverage Levels?
Leverage can make you king, but they can also cripple you. Leverage helps you make quick big gains within a very short period of time and using very little start-up capital.
How you use leverage will determine whether you will be a long term player in the fx exchange or whether your life as a forex trader will die a quick death. Choose your leverage levels very carefully.
Use your demo account to freely play around with different leverage levels until you learn to make the best decisions on the amount of leverage that works best in each trading situation.
Have You Learnt To Keep You Emotions In Check?
A forex trader’s number one enemy is the human emotions that we all possess. The two main culprits are greed and fear.
Greed will make you lose focus, make many mistakes, forget your trading strategy, forget to use money management strategies, and take on too much leverage. Trading on greed is a sure way to quick demise.
You are bound to lose all your forex investments within a very short period of time if you allow greed to dictate how you trade. Fear on the other hand will cause inertia and panic.
You will make minimal profits which will be eaten up by the spreads and you will eventually give up on currency trading online. Any kind of business or investment is about taking risk and in forex trading you cannot be successful without taking calculated risks.
Summary
If you are interested in becoming a forex trader, do not directly invest your money without learning the trade.
Use a forex demo account to perfect how you trade. Once you have traded for a while, typically between 3 and 9 months on the demo account, use the above checklist to see if you are ready for a live account.
Do not deposit any money into a live account unless you are satisfied that you are ready.
Photo credit: Focusoft
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